Are you just starting your investment journey toward retirement?
Or maybe, do you have the money required for retirement just sitting under a couch somewhere?
How many rental properties do you really need to retire from?
All of these questions and more will be answered in this article! Make sure to keep reading.
Whatever the case may be, it’s up to you to make sure you have all the tips necessary to make the most profitable decision when it comes to planning your retirement.
Many investors believe the best path they can make for themselves to retirement is via real estate properties. They’re not wrong…
It’s just not that easy.
It’s never too early to plan for retirement. In fact, it’s always better to have a plan in place before you need it.
A lot of people are intimidated by math equations and numbers but that doesn’t mean they can’t find success in real estate investing. It just means they might want to focus on a different type of investment portfolio or retirement goal.
There is no “magic formula” when it comes to retirement investing with rental properties, all you can do is make sure you cover all your basis!
But, you can make the process way easier by following these 3 essential tips for planning your retirement with rental properties.
Before we get into the tips though, let’s figure out the basics!
How Many Rental Properties Do You Need for Retirement?
Alright, here’s the truth:
The number of rental properties required for retirement will depend on a variety of factors. The location, size of the property, and lifestyle that tenants have will all play a role in determining how many rental properties are needed.
There is no set number that determines how many rental properties are required for retirement. However, it is generally accepted that you need at least three to five rentals if you want to live comfortably during retirement.
If you know you’re someone who thrives on exact formulas and guided mathematical equations that can highlight a relatively understandable path toward retirement, then there are options out there for you. It’s just important to understand that these equations work on a case-by-case basis.
What does this mean?
Pretty much, these equations don’t take into account your personal financial goals, retirement plans, or current life situations. Everyone is different.
The answer to this section’s question depends on many factors. The most important factor is the amount of income that you need to maintain your desired lifestyle.
A lot of people think that they need to own 10 rental properties in order to retire. But, is this really the case? The answer is no.
The truth is, it’s hard to know how many rental properties you’ll need for retirement because it depends on so many variables. But, it’s important to start saving now and invest in yourself as well as your future property portfolio!
Here are 3 tips that will drastically change the way you view your retirement investment portfolio!
Retirement Planning Tip #1 – Focus On The Important Metrics
Now if you remember at the beginning of the article we mentioned there is no “magical formula” to get you to where you want to go in terms of retirement plans.
But, there are fantastic websites that can assist you in calculating the important metrics you need to focus on to achieve your goals.
Websites like CanIRetireYet.com are fantastic tools for those types of individuals who love organized guides and calculators to follow to the T!
For those of you who don’t like following the dotted lines, we’ll help you list out the essential metrics that you should be tracking, analyzing, and trying to optimize!
I know it sounds very analytical, but when you break it down to the fundamentals of what many people view as “success” it can become like a very fun game.
The fundamental metrics that you should always be keeping tabs on are your net worth, your credit score, your debt-to-income ratio, and lastly your emergency fund.
Retirement Planning Tip #2 – Bust Out the Budget Spreadsheets and Calculate Expenses
The second tip for retirement planning is to calculate expenses. This includes the cost of living, housing and property costs, transportation expenses, food budget, and other recurring expenses.
Retirement planning is not just about the amount of money that you have saved. It’s also about how much you spend each month and your monthly expenses.
In order to create a budget spreadsheet, you need to list all of your income sources and then list all of your monthly expenses. You can make a list for each month or for the entire year.
There are many metrics that are used in retirement planning, but two of the most important ones are:
1) The ratio of your income to your expenses
2) Your savings rate
Budgeting is the act of taking your current income and expenses and projecting them over a period of time. This involves projecting future expenditures and income, as well as calculating what you’ll need to save in order to meet your goals.
The two main types of budgeting are cash flow budgeting and expense budgeting.
Cash flow budgeting is used for short-term planning, such as a month or year, while expense budgeting is used for long-term planning such as retirement or college savings.
Retirement Planning Tip #3 – Calculate When You’ll Be Able to Retire on Your Current Income
Retirement planning is a daunting task, but it doesn’t have to be. The first step is to calculate how much income you’ll need in retirement.
To figure out how much income you’ll need in retirement, use the following equation:
Monthly Income x 12 = Annual Income
Annual Income x 25 = Estimated Retirement Income
Estimated Retirement Income x 0.75 = Monthly Retirement Income (This will be your monthly living expenses)
There are a few different ways that you can go about this. You can use your current income and subtract the cost of living for the number of years that you want to work. This will give you an idea of how much savings or investments you will need in order to make up for the difference.
You can also take your current salary and divide it by the number of years left until retirement. This is another way that many people choose to calculate their retirement income needs.
The last way is by using a retirement calculator like this one: SmartAsset
Identifying your retirement goal is the first step and usually, that is enough for people to get started on their way to retirement.
One key question that appears in most discussions surrounding income replacement ratios is how much a family will need to maintain their current lifestyle in retirement.
To answer this question, one must first identify exactly how expensive life will be after they retire, as well as what level of annual income they might need and whether they’re financially able to replace pre-retirement income levels with a combination of savings and post-retirement investments.
Investing has always been viewed as a key solution to replacing lost income if faced with unexpected events like natural disasters or illness. Property investment provides the right asset protection needed when disaster strikes – the added advantage for investors is growth.
